Hello and welcome to today's webcast with Minesto, where CEO Martin Edlund and CFO Gustav Kvibling will present the year-end report of 2024. After the presentation, there will be a Q&A, so if you have any questions for the company, you can send them in via the form to the right. With that said, I hand over the word to you guys.
Thank you, Ludwig. Welcome, everyone. We would like to run through a little bit of the achievements in Minesto over 2024 and comment on our priorities for 2025 and ahead. In doing so, we'd like just to first do some remarks here on the big picture of markets and stuff, comment more on the financials, and then go into more details on the focus where we are right now. Maybe first then, there will be a Q&A session, plenty of room for that, hopefully also within the hour that we've set aside. Just first, for everyone that isn't very well acquainted with Minesto, what we do, we're an ocean energy technology developer that sits on one of the world's most heavily protected from a patent perspective technologies and a completely unique setup, really, really tailor-made to convert energy from ocean currents and tidal currents.
You see on the screen here the principle that a decade ago was spun out from the military aircraft manufacturer Saab AB. We're based in Gothenburg with our technical team, with our commercial team, and we have our first customer engagement and test site in the Faroe Islands in the North Atlantic, a few hours flight from Copenhagen. This is who we are. If we then move into some comments on the market and the big picture, I think it's fair to say that from a geopolitical perspective, there's a lot of turmoil and speculation on where we will be headed in many aspects, in many dimensions. One thing that we would like to underline is that when it comes to energy, security of supply will be a rising star.
We are offering solutions that will open up a local new renewable asset in terms of ocean currents, tidal currents, which means that many countries and many areas in the world today where you have limited domestic sources of energy will be able to open up in that sense. Of course, on an even bigger scale, climate change will not stop. The scientific evidence is overwhelming, and it does not matter what MAGA podcasters are saying from Iowa, we will see this planet headed in the wrong direction if we do not move heavily in favor of technologies such as ours. On the financial market, the development from a share perspective for Minesto has been really disappointing if you are looking a few years back in where we are.
I think today there's discussions on clean tech or green tech, and it's being bundled in a way where local service companies, where project investment engagements are mixed up with companies such as ours. I think it's time really to start separating the different types of investments and opportunities associated with so-called green or clean tech investments. We're sitting on a strategic energy technology with a global market, and we're positioned uniquely in this in actually making this useful for mankind. That's where we are really fighting to position Minesto as we move forward. At large, of course, the energy demand is increasing, and it's shifting in what type of energy we're using, and particularly if we look at electricity.
Seeing the electricity demand skyrocketing compared to the growth of energy means that we will really, really have to work hard, especially when we're doing it in a transition phase into renewables. There are markets where you will see that the renewable generation will have to increase by thousands of % over the years ahead, and where we're actually moving backwards today because the energy demand is overpowering the growth that we can achieve. Indonesia, as one of our largest markets, is a good example of that. What we also see is that ocean energy now is really being considered by actors looking into the future. Since there are novel technologies introduced such as ours, it's not been picked up in a way that will be good for Minesto.
The changes now from the International Energy Agency, the EU agenda moving forward, it's really helpful in putting us into the energy transition as a part of it, not only from what we are talking about, but what sophisticated or renowned institutes are doing around the world. In this, of course, contributing to this energy transition with a predictable, affordable, and renewable solution is a very, very good match in all of the markets that we target around the globe. Of course, it is not about making a small dent in this. It is a matter of contributing for real. We believe that with a market growing with our technology, we are already at the potential now where we will be equal to nuclear on Earth and for many markets far beyond that in our local contributions.
Hold my horses here on the bigger picture and have my CFO, Gustav Kvibling, comment a little bit on the year-end report. Thank you for now.
Hello everyone. My name is Gustav Kvibling, and I'm CFO here at Minesto. First of all, thanks, Martin, for this introduction. As you all are aware of, Minesto's year-end report was published earlier today, and we will be going through the figures of the full year of 2024. Sorry. We will start with the section total income, which shows a decrease mainly explained by the reduced capitalized development work. The lower capitalized development work is expected since the D12 was launched earlier in 2024. Hence the launch of the D12, Minesto had a commercial scale Dragon to present to the market, which wasn't the case in 2023. This in turn explains the reduced capitalized development work. Moving forward to the operating expenses. There is a decrease in the operating expenses in 2024 compared with 2023.
The operating expenses consist of all expenses that occur during the year, excluding personnel costs. The decrease in operating expenses is primarily explained by the launch of the Dragon 12 during 2024 and the longer uninterrupted production runs, which require fewer service interventions during the period. Further, there is a decrease in the personnel cost in 2024 compared with 2023. One aspect of the decrease of the personnel cost is the merging of development work into our facilities here in Gothenburg and a more flexible and cost-effective operational team structure when it comes to our site in Vestmanna. Moving forward to the cash and operating cash flow. We start with the cash and cash equivalents, which are strengthened in 2024 compared to 2023. This is explained by the overall cost control within the organization.
There are also several ongoing work streams to further strengthen the cash position, which include a Q1 warrant program, public funding, and also sales. Sorry, I was a little bit too fast there. We have the operating cash flow as well. We can see a reduction in 2024 compared with 2023, which are in line with the current plan for Minesto and also the roadmap to commercialize the Dragon technology. The reduction should also be seen in the light of the D12 launch and that Minesto early, the D12 launch early in 2024, and thereby Minesto could present a commercial scale Dragon to the market.
As you can see at the table here, as the table shows, there is a decrease in the number of full-time employees, which is explained, as previously mentioned, by the merger of the development work into our facilities here in Gothenburg and a more flexible and cost-effective operational team structure at our site in Vestmanna. We will move forward to the intangible assets. There is an increase of the intangible assets in 2024 and then explained by the continuous investment in the Dragon technology here at Minesto. When development work is conducted and if it meets certain criteria, the cost related to the development work should be capitalized or accounted for in the balance sheet according to the current account regulation that Minesto follows.
This means that Minesto has built up a significant amount of intangible asset consisting of vast amounts of knowledge, experience, and capability during the years of the development of the Dragon technology. Further, the intangible assets exceed the current share market value of Minesto. We will jump into the last slide for the financial parts here. This is the warrants program. The Q1 warrant program, also named TO4, will be executed in March this year. The strike price of the warrants is based on 70% of the average share price during the period between the 3rd of March to 14th of March. The subscription period follows directly after and will be open between the 18th of March to the 1st of April. The warrants will be subject to trading until the 28th of April.
After closing the subscription period, the warrants will be transferred into shares into Minesto AB. I think that was it for the financials. With this, I will give back the word to Martin so we can elaborate further on our positions and plans moving forward. Over to you, Martin.
Thanks, Gustav. Yes, a little bit more comments on the business side. I think I'm going to give you a little bit of the move in the background when I talk here and comment a little bit on the CEO letter from the year-end statement here where we put a very, let's say, bold statement as a headline here saying that we're reinforcing Minesto as the world leader in ocean renewables. I think that we are more certain than ever that we are positioned in a way to actually be the actor that takes ocean renewable energy into a large-scale commercial context. Yeah. What do we mean by being a world leader in this? It's basically defined by the inherent competitive value of the technology that we own and master. This principle, you don't see it fly here.
You saw that in the beginning, but this principle is extremely cost-effective compared to all other technologies in this sector. You've heard us say that over the years. I mean, that's what we've been telling customers and stakeholders also over the years. With the Dragon 12, the large megawatt machine that we installed, commissioned, and operated during 2024 for the first time, we also now have hands-on evidence to show our partners, project investors, and potential customers that this is not just in theory or via simulation or from smaller scale units. It's actually the performance and the functionality of the system that we will use to deploy for those larger scale arrays and production parts. We label them Dragon Farms. It is so that there have been several technologies in this sphere with months and potentially years of production historically.
That is since many years back. I think that our conclusion is spot on in explaining why we can say at last we have an offer from this sector that will be commercialized. The explanation is that what we've seen before is simply not relevant from a cost perspective. The low weight, the clever handling, and all supporting technologies associated with this is driving costs down to relevant levels. This is also part of what is sort of from an internal perspective, both a relief and an extreme success. It is that all those supporting technologies related to launch, recovery, installation, handling, we could not for certain say that they would work together with a larger, with a 10 times heavier, the larger, the three times physically larger unit. That is also a part of what now is hands-on proven and demonstrated with the technology.
As you see, the movie's rolling here. It's not the same thing to launch this large machine as a smaller machine. Those hurdles are no longer in the way for investors in moving together with Minesto. On top of, let's say, seeing is believing in this, we've also had the privilege of working over many months during the second half of last year together with DNV experts on ocean renewable energy to really go through every aspect of our technology to assess and to analyze our technology. I think that our claims are basically supported with the DNV conclusions. We can also use those extensive reports and analysis from DNV in our dialogues with customers to underline the data and the performance analysis that we are doing on the real production.
Those things, they go hand in hand and they help a lot in pushing Minesto forward. Of course, business is the number one priority for 2025. No doubt about that. Hopefully we will be able to comment a little bit more on business in this. I mean, first, as I said, the unit that we now will commercialize at megawatt scale, you see it also now in the background here rotating. This is the Dragon 12 with some minor upgrades. We can keep every aspect of this configuration, the software, the control all around it. There is not going to be another round of product development for us to push this into the commercial sphere. We should talk a little bit about what do we do with sales. What is it that we hands-on do in this?
In order to take this technology to market at a serious level, there are several aspects related to supporting technologies related to simulating the natural resource, measuring the natural resource. What I mean by that is the flow and the currents. That is sort of the energy that we want to transfer into value. In doing that, we have learned over a few years now that the process looks something like this. There will be deviations from this, but this is what we're doing. We have been over several years been involved in what you may say step one to three, one to four in this here. Finding the markets where there is a big tidal resource. On step two, do the conventional market analysis. It's a political climate where this is viable at all.
Doing the road shows, shaking hands with the energy ministers, targeting strong local partners with non-binding but still very committed memorandums of understanding. We move into feasibility studies and for us to prioritize where we go. I'd say we've moved from being in the phase one to four to now be in the phase from four to seven with the demo work together with SEV, our customer in the Faroe Islands, as the main project for seven, and also potentially Hestfjord as the leading example of a larger scale business case. This means that we're involved in completely different work to drive business forward than we have been historically. This is also a way of working where we can create sales and offer our competence as first step in level engagements and skin in the game from customers.
If we translate that into some kind of commitment ladder, I think we can say that the MOUs are in place in relevant markets. We can probably add a few more, but it's quite a volume of sales work already with where we are, a volume that is on a level we've never seen with Minesto before. To offer feasibility studies, to conduct feasibility studies, and now also really asking for large scale work in this to build business cases to assess the local market potential in the same way as we presented with the Faroes, where we go from a Hestfjord 10 megawatts all the way up to 200 megawatts. We're doing this as commercial offers to customers.
The next natural step in some markets, it can be skipped in others, is that the customers and the local context want to see the technology introduced into the local environment. It can speed up consenting. It can speed up political decisions to really make sure that there is backing for what we are doing. Then move into more Hestfjords. First, of course, secure the first 10 megawatts, the first array, and then for each of those markets, driven by the local partner, move for larger scale build-out. In doing this, it has taken several years for Minesto to accumulate the knowledge and the technologies and the approaches and the right team to actually support this sales process in the right way. It is not a matter of just bringing professional salespeople into it.
It's a matter of providing a lot of knowledge and insights into your customers so they are prepared and ready to make their own conclusions on how valuable the resource that they can access is, how valuable it is when our technology is used to harvest that energy. You see some examples here of areas where we need to map resources for tidal generation purposes. There is a lot of oceanography work around the world, but not always suitable for what we are doing. Also, to be able to adopt and customize the systems for that context and then transfer kite flying in that strait or in that area into an economic value for a certain project. We can bring in experiences from wind and from the energy sector at large.
In the end of the day, the specifics of the tidal natural resource need to be at the center of this. I believe that Minesto is probably the only actor today that can do this in depth. The reason for that is that other actors in this sector have had the privilege of using pre-consented, already built-up test environments with Ocean Energy Center in Europe, test center, for example. We have built our sites from scratch since we started because we have a unique technology that goes for lower flows and deeper waters. This is a huge asset for us in moving Minesto forward where we are. I could really get all of the financial people listening here. I can really bore you and have you shut this down by trying to dig further deep into this.
At this slide here, in the details around this, there are significant connections between the technical analysis and the actual value of investment cases. We need to be able to tell exactly what the yearly yield, how much electricity do we produce from a site, what's the optimum amount of systems that we put in this, and what's the optimum size of that unit. That work is completed for Hestfjord and is now easily duplicated into several other contexts as we move on. A reminder, this is not at all a shift in the business model that Minesto has communicated for quite a while now. We will remain a tech provider, but some of the technology that we sit on is vital for the site developers.
We can transfer that, do business out of transferring it, and using it to secure growth trajectories for our partners in the markets that we've selected. The market enabling activities are now where we are really, really active to push us forward into this. One comment on this further is also that we are setting up local market companies and inviting investors into them. For the Faroe Islands, for the 200 megawatt roadmap, the company recently founded there labeled Dragon or Drekin. My Faroese pronunciation might not be perfect, but it's not that far off. Drekin here is a market development company or entity where the rights to build this roadmap will do reside and where we're asking local investors of different kinds, industry, financial, to be a part on this journey together with Minesto.
This is on the table and it's actively being pushed as we speak here. I think we can hold it there and use some time now, Ludwig, for questions and discussions.
Yes, thank you so much for the presentation. As you mentioned here, we will now carry on with the Q&A. If you have sent in a question in Swedish to us, we will translate it and read it up in English just for information. The first question we got here, when will the Faroe Islands decide on the deployment of more kites? Who will own the dragons?
Ownership of the dragons will be with the company Drekin, the market development company. They will, from the start, be the ones that procure, install, commission, and operate the sites.
If Drekin decides to sell production entities, preferably to SEV, that is sort of the next step for the future to decide. When this will happen, this is a very similar situation to when you're building wind from scratch in a market. In the Faroe Islands, they've had real challenges with really scaling up wind as they hoped because it's land-based with a lot of dialogues around it. We believe we will have an easier journey there. It's going to be a stepwise, let's say, build-out and consenting process. From the first phase of 10 megawatts, an expansion up to 32-33 megawatts in Hestfjord, moving to the adjacent strait and moving north, moving south. It's difficult to give any exact date on where this will happen. It's an ongoing sales and process of convincing.
I think that, of course, the first 10 megawatts will be very, very important to show how valuable this is, and that will speed up the process. Thank you. How do you think the competition will look going forward? Does it feel like what you do is unique, or are there more players chasing after you, so to speak? For us, where we are now, we believe that competition is not within the tidal sector. We do not feel that there are any relevant technologies, actually, even if there are a few that are on, let's say, commercial scale. The competition will be with other renewable sources and actually with whether a certain market will push aggressively to sort of net zero energy systems. We need to really define competition as in some markets, solar with batteries compared to tidals. It is large scale wind.
Can you build centralized power plants and then put seabed cables in in some markets? Even if there will be competition and there will be selections in individual, let's say, points of time, all in all, for the markets, the 10 markets that are the most relevant for us, the growth of electricity need and the challenges with the renewable energy transition, it's so large. There's never going to be a situation where there's going to be enough of energy from one of those technologies or sources. Hybrid solutions, complementary generation in the energy mix, that's where we're going to be.
Thank you. Is there any progress on the EUR 30 million needed for the first phase of development, especially after DNV technical feasibility study?
Yes, there is progress, but I think you will have to respect that we're not going to go into detail with that verbally in a context like this. My Communications Director, she would strangle me if I tried to do that.
Thank you. A little bit shorter question here. How much does D12 produce in a day?
In a day, I mean, for us, we measure, I mean, it will serve hundreds of households with one unit. And we talk about around 3.5 gigawatt hours a year. You have to divide 3.5 gigawatt hours with 365 and reach that number.
Thank you. What projects are planned in Sweden?
In Sweden, there are no projects planned at the moment. We're doing some really, really small model scale testing, not even relevant to be mentioned here.
There are a few small areas where you could put some test units in. Sweden is not a relevant market for us as a direct market. Norway is interesting. Faroe Islands is interesting. I think Greenland is interesting, which might not be the priority market right now. If you look from a Nordic or nearby perspective here in Scandinavia.
Thank you. When you start to deliver these systems in bigger volumes, what have you calculated the economic investment per produced kilowatt is or total cost per kilowatt?
Let's see. I have it on megawatts, so you have to divide it by 1,000 then to get it.
When we look at the total CapEx, the capital expenditure for investments in a production site, and this includes both the hardware from Minesto and the infrastructure and balance of plant components from other contributors, suppliers into an array or a Dragon Farm, we see that we will start where we are with Hestfjord. We will be somewhere around EUR 2.5 million per megawatt installed. That will be significantly lowered as we move forward. Already within the first, the second, and third deployment in the Faroe Islands, we will move towards EUR 1.5 million per megawatt and then keep pushing. It is important to see that on a generic technology level, at 100 megawatts installed, we will be below EUR 100 per megawatt hour.
A megawatt into installments, we will be below EUR 50, maybe hit EUR 40-EUR 30 per megawatt hour in a general context. Of course, we will pick the first sites in a clever way. It is not going to be an average distance to shore, for example. Also, the smaller sites included in this, the initial sites are also smaller sites. In the Faroe Islands, the prices and the cost of energy will go down with every unit we deploy.
Thank you. Why is there no production of electricity in the Holyhead Deep?
We have rights to a site where we can deploy 80 megawatts long term in Holyhead. There are limitations when it comes to grid access and discussions on who is going to invest in what in that context.
We believe that since we have a strong partner in the Faroes where grid connections and grid infrastructure is basically already being built out for Hestfjord and there are no issues whatsoever, it's too risky for us to try to convince investors and go into a context like that as a first investment. I hope we will sort that out quickly. The reason why we have refocused heavily on the Faroe Islands is that everything, and I really mean everything, is in place in moving this forward.
Thank you. I know you talked a little bit about cost here earlier and maybe already answered it, but what is the mooring cost compared to total in a kite assembly?
Mooring cost.
If by mooring, if it's referred to seabed anchoring and the seabed infrastructure, the mechanical infrastructure, it's maybe, it depends on pricing, of course, but I'd say that it's a significant part of the CapEx and it will be maybe a fifth of the cost of the kite system. Minesto's offer includes at least half of those technologies when it comes to the seabed, what we call bottom joint, for example.
Thank you. What is required for SEV to think that Minesto's technology is mature enough to be included in their long-term planning?
I think that there are two components to it. We need to use the results we have now together with them and show them and get this organization that is run by politicians. The board is the local politicians from different communities around the Faroes.
They are not very used to innovation in that sense, the ones that really make the decisions. I think to convince them with more hard evidence that we have generated and presented in the right way, that's one side of it. The other side of it is a work we're doing now with SEV on updating the input to their simulation model of an optimum 100% energy system, which is a very, very interesting exercise to be involved in for us of value far beyond the Faroe Islands, where we can put in our CapEx, our OpEx, our energy yields, and then we can simulate to what share of the energy mix should be tidal compared to other solutions. There are challenges for the Faroes today with creating an optimized scenario with this.
A lot of it is related to storage and the fact that with a high penetration of wind, there will be a lot of curtailing of wind energy. There is a big update work going on in what sort of will be a main scenario or not. We are already one scenario that is seriously considered by SEV. I mean, they would not collaborate intensively with Minesto over the years if they did not believe that this is a highly interesting and valuable way forward.
Thank you so much. I know it can be hard with some kind of guidance, but when do you think you will have a contract for 10 megawatts in Hestfjord?
Oh, I am not going to speculate on that one. I think they should, by the investors we are talking to, I think they should sign tomorrow.
I mean, it won't be fair to try to speculate on timelines. I think we're doing everything we should be doing together with EY, our EY's M&A team in Zurich. We have data rooms in place. We have all the company setups. Everything is ready for us to bring partners on board to join us in the journey of making this dream come true for the Faroe Islands.
Thank you. Do you have plans to launch an even bigger Dragon in the future?
Yes. There are a lot of technology roadmaps moving forward to look into this. It's going to be a matter of the water depth and the type of flow we're talking about. Already for Hestfjord, we see that the conditions there and what we've learned about how to configure a Dragon 12 means that we are increasing the rated power from 1.2 to 1.75 megawatts.
Even if the kite is not bigger physically, it is going to be a little bit heavier and it is going to be at 175 instead of 120. Already there, you see an increase.
Thank you. Looking a little bit on the Dragon 12 here, why are the Dragon 12 not in the water producing? Can you say a few words on the technical problems that keep Dragon 12 resting on the quayside?
Yes. Actually, it is not really technical problems that has led us to stay on shore over autumn. We are building a longer tether to crank up the hands-on yield that we are generating. We have had some issues with swapping out that one to a tether that is 10 meters longer. We have had some, I think you cannot call it bad luck, but the statistics has not been with us with matching launch resources with the tidal launch windows.
We're at it and the plan is very clear. We want to be generating electricity to the grid with a larger machine. We also have some interesting stuff that we want to keep working with the smaller ones on. There will be more on this theme as we move forward now.
Thank you. A little bit follow-up question there on the Dragon 12. Is the tether upgrade finished and are you in production for more Dragons at this moment or?
We are preparing for, so the development and the design of the Dragon 12 upgrade is full speed ahead. That includes also, let's say, its conceptual changes. It includes also the D4 that we can use in certain demo offers and microgrid offers that we're working with.
It's an upgrade of the Dragon class, you may see to this, minor changes to the wing and some lessons learned on components. Still, a thorough design work to make them production worthy, make them a little bit easier to service and maintain and reach and inspect components. As of today, we are building a second, we're building a second D12 PTO and control system. That's ongoing, which means that we could change out those if we want, but we're not building a complete extra D12.
Thank you. Moving on here to the last question. Tidal energy is intermittent, although easily plannable. What solutions does Minesto foresee to bridge the gap when the Dragons do not produce enough electricity? What is the relative cost of such an installation compared to the Dragon installation?
Yes.
I think the first thing that we do here is that we approach the local energy system on a higher system level than just our individual solution, which means that if we, as we have in the Faroes, we have hydropower next to tidal power. We have to make sure that we can balance the water reservoirs as a flexible resource. When the tide is turning and we have low or no production, you crank up the hydro and vice versa. It is a very, very strong combination with existing already paid off hydro, which exists in many of the markets that we work on. The second way of doing it without adding CapEx would be to identify phase-shifted sites, as we also have in the Faroes, where we can produce in the north and in the south and the tide does not turn at the same time.
That will then be a factor to compensate. I think a less long-term wanted scenario is, of course, to keep the type of generation that is fossil today and simply say that, okay, the first goal here is to cut diesel consumption in half because we're adding tidal to the local context. From that, you can move even further on and say that you can shift consumption patterns with new tools when you add tidal. For the Faroes, for example, the first Hestfjord, one obvious use of the tidal electricity could be to charge the very proportionately large EV fleet in the Faroes. We can guarantee every owner of an EV in Tórshavn, the main town, the main city, the capital, that if they park their car in the evening, it will be charged in the morning.
We can't promise that it is charged to a certain level the early hours of the night. It is still so plannable, so you can guarantee that. You can move on and say that you can add technologies, for example, battery solutions, where you will have to have a few hours of coverage with batteries. You will know exactly what size, scale, and performance of a battery you need to add it. That is going to be costly. It is going to be, let's say, economically feasible in certain microgrid contexts where you have very expensive diesel today that you want to get rid of. This is, and you can keep going on different types of compensation solutions. I'll hold it there. It was probably a longer answer than it should have been at the beginning.
I think it was good. As I mentioned earlier, that was all the questions we had. If you have any more questions, you can contact Minesto afterwards via email, and they will get back to you. Thank you so much, Martin and Gustav, for presenting here today. Thank you all for tuning in and sending us questions. I wish you a pleasant day. Thank you all for sharing an hour together with Minesto. Bye-bye.